IBM profit misses estimates for first time in eight years

IBM Corp earnings miss estimates for first time since 2005

International Business Machines Corp., the largest technology-services provider, missed analyst profit estimates for the first time since 2005 after hardware sales slowed. The shares declined as much as 5.9%.

Excluding some items, first-quarter profit was US$3 a share, the Armonk, New York-based company said today in a statement. That missed the US$3.05 predicted by analysts, according to data compiled by Bloomberg, marking the first shortfall in eight years. The company also said it would cut jobs and divest some businesses this year.

We did not achieve all of our goals in the period

IBM, grappling with sluggish demand for hardware and consulting work, has been pushing into faster-growing, more lucrative markets like data analysis and mobile-phone security. For now, though, the newer areas aren’t offsetting the slowdown in its traditional businesses, especially as economic concerns cause customers to put off long-term technology contracts.

“We did not achieve all of our goals in the period,” Chief Executive Officer Ginni Rometty said in the statement. “We did not close a number of software and mainframe transactions that have moved into the second quarter.”

The poor performance of some businesses, such as certain storage products, is prompting the company to take “substantial actions,” Chief Financial Officer Mark Loughridge said on a conference call. The moves will include job cuts, or “workforce balancing,” this quarter, he said.

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IBM shares fell as low as US$195 in extended trading after earnings were announced. The shares had been up 8.1% this year and reached a record close of US$215.80 on March 14.

First-quarter net income slid to US$3.03-billion, or US$2.70 a share, compared with US$3.07-billion, or US$2.61 a share, a year earlier, IBM said.

“It’s a combination of Europe, financial services and discretionary spending affecting their performance,” said David Grossman, an analyst at Stifel Nicolaus & Co. in San Francisco. He advises buying IBM shares. “I wasn’t going into this quarter with grand expectations.”

Sales slid 2.3% to US$104.5-billion in 2012, the first decline in three years. Last year’s revenue was just 0.8% more than 2008 sales. That’s the worst four-year growth rate since the period that ended in 2002, according to data compiled by Bloomberg.

The company has focused on improving earnings instead of revenue. That effort has included moving into higher-profit businesses, selling off segments that became too competitive to be profitable, and buying back shares. IBM maintained its forecast for 2013 earnings per share of at least US$16.70 — on the road to its goal of US$20 a share by 2015.

Big Data

Rometty has said that “big data” services, which let customers mine vast troves of information to make better decisions, are the company’s biggest priority for 2015.

In February, IBM said its data-analysis business will perform better than expected, adding US$20-billion in annual revenue by 2015. That compares with an earlier forecast of US$16-billion.

I wasn’t going into this quarter with grand expectations

The latest staff reductions would continue a trend in recent years. IBM spent US$803-million on workforce restructuring last year, up from US$440-million in 2011. The increase was primarily due to actions outside the U.S. in the third quarter, according to IBM’s filings.

An employee advocacy group said in February 2012 that the company had fired more than 1,000 workers in North America in a single week. IBM didn’t comment on the claim.

Even with the job cuts, IBM’s workforce has steadily grown, partly through acquisitions. The company had almost 467,000 workers at the end of last year, up 7.8% from 2011. Net income per employee, a measure of productivity, declined 2.8% last year, according to data compiled by Bloomberg.